Exhibit 16 -Refer to Exhibit 16

question 19

Multiple Choice

Exhibit 16.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A portfolio manager is trying to establish a strategic asset allocation for two different clients, Bob Bowman and Tom Luck. Bob Bowman has a risk tolerance factor of 22 and Tom Luck has a risk tolerance factor of 6. The characteristics of the three model portfolios under consideration are provided in the table below. $\begin{array}{ccccc}&\text { Asset Mix}&&\text { Expected}\\\text { Portfolio } & \text { Stock } & \text { Bond } & \text { Return } & \text { Variance } \\\hline \text { A } & 0.75 & 0.25 & 0.12 & 0.45 \\\text { B } & 0.4 & 0.6 & 0.08 & 0.16 \\\text { C } & 0.3 & 0.7 & 0.05 & 0.06\end{array}$
-Refer to Exhibit 16.1. The expected utilities of Portfolios A, B and C for Tom Luck are

• A)Portfolio A = 9.95, Portfolio B = 7.27, Portfolio C = 4.73
• B)Portfolio A = 4.5, Portfolio B = 5.33, Portfolio C = 4.0
• C)Portfolio A = 7.95, Portfolio B = 5.33, Portfolio C = 4.73
• D)Portfolio A = 3.5, Portfolio B = 7.27, Portfolio C = 4.73
• E)Portfolio A = 5.33, Portfolio B = 7.27, Portfolio C = 6.75

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Definitions:

Biological Instincts

Innate tendencies or fixed patterns of behavior present in animals and humans that are driven by biological factors.

Childhood Trauma

Experiences of distressing or disturbing events during childhood that can have long-lasting psychological effects.

Neurotic Need

An intense psychological demand that arises from emotional conflicts and insecurities, often leading to maladaptive behavioral patterns.

Neurotic Competitiveness

An unhealthy need to compete and win in all situations, often stemming from insecurity and a desire for validation or superiority.